Form 709 – What Is It? When Should It Be Filed?
Taxpayers use IRS Form 709 to report gifts. Filing the form with the IRS is the responsibility of the giver, but it’s only required in certain gift giving situations. Take for instance the check Grandma writes for your birthday each year. Would that gift require her to file IRS Form 709? That depends.
She would need to file Form 709 if the check amount is more than the annual gift tax exclusion amount — that limit is $15,000 per recipient. If the amount is below the threshold for a specific year, then she will not be required to report the gift on tax form 709.
IRS Form 709 – Filing Requirements
Let’s review the situations that require gift tax reporting. Generally, Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return is required if any of the following apply:
- An individual makes one or more gifts to any one person (other than his or her citizen spouse) that are more than the annual exclusion for the year. Note: the annual gift tax exclusion amount is indexed for inflation.
- Spouses “split” a gift given to another person, regardless of whether the amount is more than the annual exclusion amount. The gift is treated as half from the taxpayer and half from the taxpayer’s spouse. Because spouses may not file joint gift tax returns, each spouse would then report half the value of the gift on their respective Forms 709.
- An individual gave someone (other than his or her spouse) a gift of “future interest” of any amount. Future interest means that the recipient cannot actually possess, enjoy, or receive income from until sometime in the future.
- An individual gave his or her spouse a gift of “terminable interest” in property that will end by some future event.
Form 709 Deadlines
The filing deadline for IRS Form 709 is the tax filing deadline of the year after the gift is completed. This typically falls on the tax deadline.
If an extension is needed, an automatic Form 709 extension will result from an extension of time granted for filing the federal income tax return Form 1040. If a taxpayer does not request an extension for their income tax return, Form 8892 is filed by the regular Form 709 due date for an automatic six-month extension.
What Can Be Considered a Gift?
A gift occurs when a taxpayer transfers property for less than full and adequate consideration. The transfer must be complete and irrevocable. A transfer is a gift only if the donor cannot take the property back and the donee receives full enjoyment to do what she pleases with the property — it’s an objective determination, meaning the subjective donative intent is not required for the gift tax to apply.
In some instances, the tax code will treat loan transactions as gifts.
Example 1: A below-market interest rate loan between family members is a gift loan. The gift is the excess of the amount loaned over the present value of all required payments under the loan. If the lender does not require payment by a particular date, the gift is instead the amount of interest the lender would charge if the applicable federal interest rate were used to calculate interest. However, the IRS does allow an exception for de minimis below-market rate loans of $10,000 or less.
Example 2: A taxpayer adds a person to the title of real estate or bank account. State-level property laws dictate whether creation of a joint tenancy with rights of survivorship create a gift. However, generally speaking, if a parent adds a child as a joint tenant to real property, the tax code considers the parent making a gift of half the fair market value of the home if either joint tenant has a legal right to sever his interest. An important exception to this rule exists for marital transfers — there is an unlimited marital deduction for gifts between spouses.
Annual Gift Tax and Lifetime Exclusion
What is the gift tax and when does it apply? Even though gifts may be reportable, they are not necessarily taxable. One unique aspect of our tax code is that the gift tax and estate tax regimes are unified. Meaning that a taxpayer’s gift and estate taxes are computed based on the cumulative transfers made by a taxpayer using one tax rate and one exclusion amount — this unified credit is sometimes called “the lifetime exclusion.”
A taxpayer may charge taxable gifts against the lifetime exclusion, and the taxpayer’s estate may then use any remaining amount. The lifetime exclusion amount is $11.18 million.
Form 709 Instructions and Questions
You can find more information about the situations that require Form 709 to be filed and how to complete the document in the Form 709 Instructions.
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